Landis+Gyr Group AG

Ladies and gentlemen, welcome to the Analysts and Investors Full Year 2023 Conference Call and Live Webcast. I'm Iruna, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Eva Borowski, SFPIR and Corporate Communications. Please go ahead, madam.

Thank you, Marina, and good afternoon, good morning, everyone. As you know, earlier today, Landis & Gear issued its financial year 23 results ad hoc release and accompanying presentation. You can find these documents on our website. Before we get started, we want to emphasize that some of the information discussed today contains forward-looking statements. and we want to explicitly emphasize that there are numerous risks, uncertainties, and other factors, many of which are beyond Landis & Gere's control, that could cause Landis & Gere's actual actions or performance to differ materially from the forward-looking information and statements made on this conference call or in this presentation. Consequently, Landis & Gere can give no assurance that those expectations will be achieved. For more information, please see page 2 of the presentation in our press release issued today. This conference call will follow the presentation, so we suggest that you have it on your screen or otherwise available to follow along with our remarks during the first part of this call. Afterwards, you will have the opportunity to ask questions, and Miruna will provide further instructions as we start the Q&A. With that short introduction, I'd like to turn over the call to our Chief Executive Officer, Werner Lieberherr.

Thank you, Eva. Good afternoon, good morning, everyone, and welcome to our financial year 2023 results. I'm here with Elodie, our CFO, and Eva, as you just heard, our Senior Vice President of Investor Relations and Corporate Communications. And we are very pleased you have all been able to join us today. We are pleased to report strong results for FY23, delivering above our guided ranges for the full year and demonstrating our ability to deliver continued strong growth and margin expansion. The return to largely normalized market conditions and a strong focus on backlog execution drove growth and supported our ability to serve customers' demand even better throughout the year. Continued strong order intake and a new record backlog show the trust our customers have in our solutions and underpin the resilient nature of our company. Additionally, the rapid push for electrification increases the demand for energy efficiency and grid resiliency solutions. These factors, paired with our strategic transformation, provide a solid foundation for sustained profitable growth. The increased need for intelligence at the grid edge positions us in the sweet spot of the energy transition as we continue to expand our end-to-end solutions to enable our customers to manage energy better and drive the decarbonization of the grid. Now let's talk about what's been happening over the last year and move on to slide three. We are pleased to announce an order intake of almost $2 billion driven by Americas, resulting in a book-to-bill of above one and a new record backlog of almost $3.8 billion. And we were able to deliver strong net revenue growth over 15% year-over-year in constant currency, making FY23 our best year ever since IPO. Adjusted EBITDA margin came in above the guided range with 11.4% due to operating leverage and steady recovery of supply chain cost. Free cash flow returned to robust levels with over 91 million US dollars. And on June 25th, a progressive dividend of 2.25 Swiss francs per share will be proposed to the AGM. In addition, we are excited about new strategic investments and partnerships with Spen and Prusa, which allow us to further strengthen our portfolio to equip our customers with integrated end-to-end flexibility management solution. Moving on to slide four. Our portfolio enables us in a unique way to have a direct sustainable impact. In FY23, we were able to avoid over 8.9 million tonnes of CO2 emissions through our installed base of smart devices using a new methodology developed together with Carbon Trust. As a result, we were able to help avoid almost seven times more carbon emissions than we produced. With the approval of our science-based target initiative, decarbonisation targets, we continue to improve our performance on our journey to reduce carbon emissions. and we continue to measure our ESG progress against 20% of our short-term incentive for all eligible employees. On May 30th, we will publish our sustainability report as part of our annual report and invite you to take a look on our website once these documents are published. Let's turn to slide five and have a look at the developments in each region. I'll start with the Americas led by Sean. We have continued to build strong momentum through FY23 with key strategic wins and exciting deployment milestones. We were able to book a stellar order intake of over $1.2 billion, a book-to-bill ratio of 1.1, resulting in a backlog of almost $3 billion. And for the first time, the Americas region has delivered revenue above the $1 billion mark. With well over 200 agreements signed, doubling year-over-year, FY23 was a very successful year for the region, and we see good momentum for future growth, but the pipeline remains strong and infrastructure investments pick up steam. With many large AMI rollouts underway, which include national-grade AES Ohio and LG&D, we continue to replenish our record backlog. In smart metering, we were able to win a few notable contracts, including EPCOR in the city of Edmonton, the city of Florence, Alabama, and Brownsville. We also made fantastic progress in grid edge intelligence with wins that include Fortis, Alberta, and Tidmont. Lastly, in smart infrastructure, we have expanded our reach as well with a win by Anapro for level two EV chargers, AP Texas and Berkeley. In summary, We are proud to be a provider of creative infrastructure and continue to support great resilience and modernization and flexibility solutions with state-of-the-art cybersecurity applications. On the next slide, I would like to briefly share an update on our leading Revelo platform. Revelo is the only grid sensing platform available today with streaming high-resolution waveform data on every device, providing real-time visibility into where DERs are on the grid, real-time awareness and grid condition. actionable insights for engaged prosumers and overall grid reliability through unparalleled edge intelligence. On this slide, you can see a selection of our Revello customers, which demonstrates the wide adoption of this latest technology. In order to realize the true value and benefits of a connected grid, it requires a grid sensing platform that was designed to evolve to support utilities of every size for the next 20 plus years. We are proud to report that we have now entered the mass deployment phase, including numerous edge apps spanning consumer engagement, grid analytics, demand response, cybersecurity, and safety. Today, over 5 million Rivelo sensors and multiple grid edge apps are contracted and in active deployment. Real-time visibility at the grid edge is a key driver for sound analytics and flexible management solutions. Let's move on to slide seven and take a closer look at the mayor led by Bodo. In FY23, we have successfully expanded our presence across several markets, including Switzerland, Germany, Finland, South Africa, the Middle East and Central and Eastern Europe. This expansion was closely linked to the swift implementation of both ongoing and newly initiated projects, while deployment focus was strongly tied to great edge solutions and smart metering infrastructure. We can also see these developments in the regions in both revenue growth of over 10% and margin improvement by 4.9% and will continue to work diligently growing our EMEA region profitability going forward. In smart metering, we were able to further strengthen our position with numerous wins, including Oiken in Switzerland and E.ON in Sweden. Despite the slowdown in rollouts in the UK, we have delivered over 1.6 million smart meters and successfully defended our position as the largest supplier in an increasingly competitive landscape. As a result, we were able to secure an additional 800,000 endpoints with two of the largest UK energy suppliers. In GreenEdge Intelligence, we have successfully supported our customers with accelerated rollouts to combat the energy crisis and enable the energy transition. Among others, we were able to win contracts with SES in Switzerland and Israel Electric. In smart infrastructure, our EV solutions business was able to secure important wins with key e-mobility players, including EDP, Allegro, and Moon, a subsidiary of Porsche, who awarded us a frame contract for both our Inch Pro and Inch Duo chargers in Europe. While EMEA continues to recover from supply chain headwinds, we continue to drive innovation. Over the last year, we have seen some great wins in the region, positioning EMEA well to capture profitable growth in the coming years. Now let's take a look at Asia-Pacific on slide 8. With David McLean, I'm pleased to present a new internal leader for our Asia-Pacific region. With Steve's well-deserved retirement, we have a worthy successor in Dave, who has been working for many years alongside Steve, and we have concluded a smooth transition on April 1st. We are well positioned in our target markets for emerging smart water opportunities across Southeast Asia and we are working closely with our customers in the Philippines and Thailand to support their AMI rollouts. While focusing our expertise in India as a leading services and solutions provider, Australia, New Zealand and Hong Kong remain cornerstones of the region's success. After seizing manufacturing activities in India, we see a decline in revenue, while we saw a nice development upwards for the EBITDA margin coming in at 11%. In smart metering, we have secured a number of notable wins, in particular with a large customer investment in Australia, as well as a leading gas utility in Victoria, Australia. In addition, we continue to keep the momentum going in Hong Kong. In grid edge intelligence, we received an order from Intellihub for the Australian Power of Choice market, And our newly formed joint venture with EasySoft allows us to continue to serve the market after refocusing our efforts on software, services and solutions. In smart infrastructure, we continue to expand our services revenues with continued growth in SaaS or software as a service, including wins with Eureka, Energy Queensland in Australia and Watercare in New Zealand. In addition, we are pleased about steady progress in our EV business with Thunder Grid as a great addition, bringing home wins to serve the region with transportation electrification needs. Overall, we see a continued positive trajectory that allows us to drive new business. Now, let's move on to slide nine, as I would like to share some more details about a few exciting new partnerships. Let me start with our strategic partnership with SPAN, a leading provider of smart panels and home electrification solutions. Our partnership will focus on unlocking electrification and DR flexibility at the grid edge to cost-effectively advance electrification, create grid flexibility and build resilience. Our grid edge intelligent solutions paired with SPAN HOME's energy management system offers superior metering and control capabilities, redefining AMI 2.0 and enabling the cost-effective grid management of the future. In essence, a multi-asset virtual power plant. We are excited to keep you updated on the progress we have already made with a few selected launch customers. On slide 10, I will share details on another partnership with Prusa. By entering into a strategic partnership with Prusa, a leading provider of power electronics, we are expanding and enhancing our EV solutions portfolio. Together, we are bringing DCT and inductive charging solutions to the market. The inductive charging system is already approved for operation in Europe, China, North America and Japan and will produce notable revenues from FY25 onwards. As a result, we are further strengthening our position in the EV solutions market for hardware, software, and mobile apps. Now, let's turn to slide 11 and take a closer look at our consolidated results. We saw significant revenue growth led by Americas and EMEA, supported by catching up on pent-up demand of around $120 million, and continue to see positive momentum based on our record backlog. demonstrating the trust our customers have in us and our solutions. Adjusted EBITDA expansion was driven by steady recovery of supply chain costs, operating leverage and operational efficiencies. Earnings per share, excluding the IntelliHub divestment, increased by 112.4%. Overall, I am very pleased with the results and now Elodie will give you a more detailed review of the financials. Afterwards, I will come back to our guidance before we open up the call for questions. Elodie, please.

Thank you, Werner. Hello, everyone. I will now walk you through the details of the financial year 2023. As mentioned by Werner, order intake was at 1,978,000,000. This results in a book-to-bill ratio above 1 for the company, driven by the Americas, with key wins like PEPCO, PPL, Somalia Public Power, and Salt River Projects. Revenue growth was very strong year over year, and it is important to note that orders continue to keep pace with our top line expansion. Our backlog reached a new record level of approximately 3.8 billion. This continues to be a very positive development and secure our future top line growth. Let's now talk to net revenue on slide 13. Our net revenue result for the year was $1,963,000,000. This represents a growth of 16.7% in real terms and 15.6% in constant currency versus prior year. Overall, a very strong focus on backlog execution and the catch-up of pent-up demand for significant top-line growth. America's revenue performance continued to be particularly strong, driven by our North American market and Japan. EMEA growth was driven by France, South Africa, Switzerland, and Germany, while we continued to see softening in the UK market. APAC experienced a decline in revenue, predominantly driven by India, as a result of our decision to cease manufacturing activities in the country in the last fiscal year. Overall, we saw very strong performance on top lines throughout this year, with a positive impact on EBITDA. Let's look at this in a bit more granularity on page 14. Our adjusted EBITDA increased from $139.9 million to $223.9 million year-over-year. This translated into an adjusted EBITDA margin expansion year-over-year from 8.3% to 11.4%. The margins benefited from a significant volume impact due to the strong revenue growth, particularly in the Americas, and supported by America. Additionally, gross profit margin was impacted positively by improved operational performance, including the steady recovery of supply chain costs of approximately $28 million year-over-year. Finally, our adjusted operating expenses increased by 22 million year-over-year. Reasons for this development were the ramp-up cost related to backlog execution, as well as future backlog conversion and increased variable compensation, particularly in North America. Investment in EV technology and ramp-up of our acquisition Luna in Turkey as a broader manufacturing platform in EMEA. and continuing investment in our strategic initiatives, gas and water ultrasonic technology, as well as grid edge intelligence and software solutions. As you're aware, we adjusted EBITDA to provide a more accurate reflection of operational business performance. Turning to page 15, we will discuss the bridge from reported to adjusted EBITDA in more details. The bridge between reported and adjusted EBITDA contains three items, as usual. First, restructuring. In FY 2023, the restructuring charges are primarily related to a global restructuring initiative completed in the fiscal year called Project Horizon, which aimed at streamlining the organization and delivering operational efficiencies by reducing the workforce by about 200 positions. Second, warranty normalization adjustments. This adjusts the warranty provision amount made in the fiscal year relative to the three-year average of actual warranty costing curve. Here, the downward trend for prior years continue and shows lower warranty cases in recent periods. And third, timing differences on FX derivatives. This adjustment excludes unrealized losses of 0.9 million related to market differences on our FX hedges. With this, let's now turn over to our cash performance on slide 16. In 2023, our free cash flow generation, excluding M&A and investment activities, was at 91 million, a strong recovery versus prior year, driven by improved profitability and a strong focus on collections. Overall, with a significant increase on top line, working capital increased by $41.7 million, yet improved as a percent of net revenue. As anticipated, inventory levels have reduced throughout the second half of the year by approximately $50 million, and we are expecting that this positive development continues in FY24. With our focus on inventory reduction, we decrease also our purchasing volumes, and we therefore also decrease on our accounts payable balances. CapEx was at 30.6 million, or 1.5% of net revenue, primarily focused on new product introduction and upgrade of manufacturing facilities. Lastly, as Werner mentioned earlier, we made two minority investments for a total of approximately 72 million, strategic partner Bruiser Electronic and Spam. With this cash performance, let's have a look at the net debt situation on slide 17. As of March 31st, 24, the net debt position was $131.3 million. Net debt was impacted by the following items. First, the dividend payment of $70.8 million that was made in June last year. Second, M&A and investment activities that were $72.8 million, as just mentioned. Third, our free cash flow generation of $91 million. And lastly, FX and other impacts that were negative $13 million, with the main drivers being realized FX losses, repurchasing of some treasury shares, and debt issuance-related costs. Worth to note as well that in February 24, we successfully completed the refinancing of the company and secured a $500 million USD credit facility that will be available to us for a period of five years. Overall, we continue to maintain a strong balance sheet with a net debt to adjusted EBITDA ratio of 0.59 times, and this really provides a solid foundation and a great platform for future growth opportunities. With this, We moved to a deeper look in the regional performance, starting with the Americas on slide 80. So in the Americas, order intake was over 1.2 billion, resulting in a book-to-bill ratio of 1.1 times. At the end of FY23, committed backlog was on a record level, close to 3 billion. And in 2023, revenue increased by 27.4% to $1,131,000,000, a record result for the region, breaking the $1 billion mark. The expansion was driven by a strong focus on backlog execution, as well as catching up on pants-up demand as we saw recovery of the supply chain. Adjusted EBITDA margin increased by 300 basis points to 16.4%. The expansion was primarily driven by higher operating leverage. Operating expenses were impacted by further ramp-up of investments to support backlog execution and future convergence, increased variable compensation, as well as investment in strategic initiatives. If we now move on to the performance of EMEA on page 19, In the EMEA region, we recorded a book-to-bill ratio of 0.9 times that was supported by order intake in Switzerland and Israel. Revenue increased by 7% in constant currency to $668 million. The revenue growth was driven by strong demand in France, South Africa, Switzerland, and Germany, and partially offset by something in the UK market. Adjusted EBITDA improved to 17.5 million, resulting in a margin of 2.6%. The 490 basis points EBITDA margin increase year over year was predominantly driven by operational leverage on the back of higher volumes, some recovery of supply chain costs, and improved mix. At the same time, we continued investing in developing our EV solutions and the ultrasonic water meter technology, as well as the expansion of the lunar business. Now, looking into our APAC region on slide 20. In the APAC region, we recorded a book-to-bill ratio of 0.8 times. The year-over-year decline of order intake is predominantly driven by the discontinuation of manufacturing in India. APAC revenue decreased by 12% in constant currency to $164 million, driven by England and Bangladesh. that was partially offset by strong demand in the Philippines and Hong Kong. Adjusted EBITDA margin expanded by 410 basis points to 11% due to a more favorable country mix, operational efficiencies, and a steady recovery of supply chain costs. So after this overview of our 23 results, I will now hand it over to Werner for the guidance for 2024.

Thank you, Elodie. Turning to slide 21, let's talk about the guidance for FY24. Following an extraordinary year of growth, we expect low single-digit revenue growth for FY24 compared to 23, while we continue to focus on expanding our profitability. As a result, for FY24, we expect an adjusted EBITDA margin between 11% and 13% of net revenue. Lastly, we continue to follow our progressive dividend policy and A dividend of 2.25 Swiss francs will be proposed to the AGM on June 25th. As outlined during our Capital Markets Day on slide 22, you can see that we will continue to drive our strategic transformation forward while managing costs diligently. The guidance for FY25 is hereby confirmed and now we will open up the call for questions.

Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Anyone who has a question may press star and 1 at this time. The first question from the phone comes from Michele Rose with Badar Helvea. Please go ahead.

Yes. Hi. Good afternoon, everybody. Can you hear me?

Yes. Hi, Michael.

Hi. Hi. Hi. Perfect. I just have two or three questions, if possible. So the first question is kind of, I would say, generally regarding the regional development for the next year, so for the following year. And I would say, could you maybe give us a little bit more color in terms of what you see currently in the Americas, EMEA, and Asia-Pacific? in terms of development of order intake, so to speak, i.e., are you still expecting a further increase in order intake? And then maybe the second question is on the EBITDA buy segment, so adjusted EBITDA. How are you expecting that to continue for the next year? And what I mean by specifically is also regarding Asia-Pacific, because the margins there have reached quite a high level. I'm just wondering if that's sustainable or if you expect more of the more expansion to come from EMEA and Americas. And then my final question is just on restructuring, if you're expecting any more charges for this next year.

Thank you. Yeah, thank you very much, Michael. Great questions. First one, regional development. Clearly, you know, we have 60% of our revenues coming from the U.S. I expect that to stay like that. You know, the U.S. is not only the largest, but also the most profitable markets. We see very solid targets. Clearly, I expect in the US, you know, a book to bill of one to one or higher. So I think, you know, looking at the further development, looking what also the government is doing in terms of funding a lot of the projects, I think remains extremely strong. EBITDA, sorry, EMEA also, we see very good potential. As you can imagine, also in Europe, It's important to have more intelligence in the grid. We need to keep in mind that we see more renewable energy coming in on the production side. We see actually more EVs, heat pumps on the consumer side. So there's more volatility in the grid. And with that, we also invest. Europe, we need more intelligence in the grid. So I expect also in Europe we should see good targets. And, you know, APEC a little bit more commoditized, but also there we have three extremely strong markets, which is Australia, New Zealand and Hong Kong, but then also in Southeast Asia. Malaysia, Indonesia, Philippines, Thailand, also there, a good development. So I would say clearly strongest growth we see in Americas, you know, in summary, but then also in EMEA and in APEC, good developments. In terms of margins, clearly, you know, in the U.S., also no, it's critical infrastructure, no Chinese, no Russians, makes a difference. Also, very dated grids, which requires actually more intelligent, more differentiated products and services. For me, when I look into 25%, clearly, you know, I see the Americas on the course for 18%. There's no question about that. You know, they came in now at 16.4%. They will go in between in 24% in terms of preview and then go to 25%. EMEA, it's a little bit a different case. We expected originally stronger margins. Supply chain not yet coming down the way we expected, but we clearly see that now coming. The supply chain normalized, as you heard during the introduction, which I think is positive. So from the 2.6 going in between and then going to 10%, we are not changing the target for that. We have the right strategic initiatives in place, I believe that we can do that. Asia-Pacific 11%, I would say for 2025, we leave that at 10%. We are on a good track with this 11%, but we also need to keep in mind, we will also compete in some of the markets, you know, Southeast Asia, where it is a little bit more commoditized than maybe in some, for example, likelihood to that. And then the last one is restructuring more charges. No, restructure is pretty much completed. By the end of 2023, we see some severance packages, obviously, going into 2024, but pretty much completed and done this Horizon project.

Okay, that's perfect. And maybe just one follow-up, just now that it's in my head. Thank you. Just generally, and this is more a sort of long-term question for the EMEA market itself. Obviously, with your product offering, that you can basically offer more in terms of a whole package to your customer, i.e. the utilities. Is that giving you a better or, let's say, strengthening your competitive position against the other more sort of fragmented competitors within EMEA?

Definitely. You know, the way we are able to offer end-to-end solution, including head and system, including grid analytic platforms and more software and than others really turnkey packages and that definitely gives us a competitive advantage. I would say we not yet see that to the degree as we actually would like to see it, but definitely. And then the other thing, Michael, what I would like to mention is obviously we are also pushing, we are pushing the water meter has been finished. We pushed that into the market. Generally speaking, water has very solid margins. EV, we are pushing in the market, which also we see higher margins. So I think from an overall perspective, I think we are trending in the right direction. Perfect. Thank you very much. Thank you very much, Michael.

The next question from the phone comes from Akash Gupta with J.P. Morgan. Please go ahead.

Yes. Hi. Good afternoon. Thanks for your time. I have a few questions as well. My first one is on R&D spending, which if I look at in your P&L has come down from 9% of revenues for the full year down from 10.4% a year ago. It looks like you have slowed your R&D spending compared to the growth in revenues that we have seen. So maybe if you can talk about your R&D policy and are you looking to

spend less in some of the areas which could explain um this drop in r d ratio and any guidance on where we should expect r d going forward that's the first one to start with thank you yeah so when we think about r d you know we said largely around nine percent i think we are about there obviously also helped a little bit is the growth in revenue but then looking into 24 we also have some initiatives which we kicked off, for example, you know, which are new, for example, with Spain, with Prusa, which cost a little bit money. So I think to make an assumption, you know, plus minus 9%, it's a good assumption.

Thank you. And my second one is outlook for orders. I mean, in your opening remarks, you said that there is a rapid electrification which is driving demand for grid resilience. But when we look at your orders, we don't really see any inflection there. So maybe if you can talk about how do you expect order growth in the next six to 12 months, and do you see any inflection in customer demands in the coming period?

Yeah, so look, for example, when we look into the U.S. alone, what you will see is that the U.S. is really kind of an inflection point. We will see next two to three years quite an increase in terms of energy consumption due to heat pumps, EVs, and so on, which maybe is not reflected to the full degree. But there's no question that we do see that type of increase. increased demand and you know we did have in the U.S. book to bill of 1.1 which was great and we clearly see In the U.S., as we grow revenues, we will see books appeal of one-to-one or better, I expect. I actually expect it better in the U.S. And pretty much for Europe and APEC, it's our clear declared targets, one-to-one or better. We have not seen it exactly in EMEA. and APEC, but sometimes it's also a little bit timing. I think most important is obviously we achieve it for the company where we were able to do a one-to-one, but also in EMEA and APEC, we see further opportunities to achieve that target.

Thank you. And my final one is on your reporting. So, I mean, you do report geographically, which is good to see the development, but then you also have three segments like smart metering, grid edge intelligence, and smart infrastructure. I wanted to get some insight on when we look at your 2023 performance and instead of looking at geographically, if we look at by business, how does this growth and margin expansion compares in the three segments like smart metering, grid edge, and smart infrastructure? When it comes to the guidance, could you provide some more granularity that how does this low single-digit growth, like, you know, compares with these three verticals?

Akash Kudaibergen Yeah, so, you know, no, thank you, Akash. Great question. So we do think exactly what you said, smart metering, grid edge intelligence, smart infrastructure. You know, let's say a smart meter goes into smart meter, as the name says, and then it's actually like a Revelo meter goes into a grid edge. There's also software and then smart infrastructure like EV and so on. And, you know, what I would like to say is what is very important is obviously as we go more into grid edge infrastructure, More into smart infrastructure, there's more software and services. We like that. I think that's a very important piece, you know, because inherently it has larger margins. We also see actually that, you know, on these large contracts, like, for example, National Grid, which is 300 million in New York alone. And then obviously on top of that, we have Rhode Island and Australia. And when you look into that, you know, we are really talking then about where we have 20% to 30% actually software and services. And I think that's what we can say, that we really are pushing towards actually, you know, going in the direction of software and services, in the direction of 30%. And that's very important from a profitability perspective. That also allows us, obviously, to expand margins.

Thank you.

Thank you, Akash.

The next question comes from Lothar Lubinetsky with Octavian. Please go ahead.

Hey, guys. Good morning or good afternoon. Werner, just a couple of questions. First, I come back to the first question, which was looking at margins. If I compare your target for the U.S. 18% by 2025 with the real sweet spots, which was above 20 or even slightly higher, do you think you can achieve that, especially if you increase the software and the service content?

You mean a 20% EBITDA margin? Yes. Look, my view is this. Oh, sorry, Lothar, go ahead.

No, no, go ahead. Lothar, look.

My view on the U.S. is as follows. I think it's a great market. You know, I know the utilities obviously very well. I lived there for 20 years, and they need differentiated technologies. You know what I mean? And I think we have excellent customer intimacy, leading technology. So the way we see it is, you know, we said 18%. in the US by 25 EBITDA. But for me, it's clearly that there's more runway. My personal view is that we will go to 20% beyond 25.

And second question, can you give us a roadmap on how and when you can get to the 10% in EMEA?

From the 2.6% you have today. Our target is unchanged, and you may think it's a little bit ambitious. I would agree with that. Our target is clearly we want to be at 10% by 2025. So why do we think that's possible, Lothar? First of all, we will also see in EMEA more software and services. I think that's very important. Secondly, we see a footprint rationalization, which we are doing also in some instances, Lothar, where, for example, a customer says, I don't care whether it's a European-based or a Chinese product. We can do that too in terms of contract manufacturing. I think we are equipped to do that. We also have very good manufacturers there. Then we do supply chain is a critical piece where I expect larger supply chain actually easement. You know, EMEA was much harder hit actually in the last years than the US just due to the setup. And then we did Horizon where we had around, you know, 14, 15 million of costs and around 12.6 million in savings going forward. Sorry, it's actually the other way around. around 14 million of savings and around cost, I think, around 12.6. And then last but not least, we also watch the R&D very carefully. But these are the drivers. And I know it's an ambitious target, but we are not willing to give up on that. I think it's really, it's in our eyesight and we will push it extremely hard.

That's now the second or third time you are talking about the supply chain in Europe. From the outside, I had the feeling that supply chain already normalized. Is there much more to come?

Yeah. I mean, look, we saved actually 20 million in last year. But for example, when you look Just in Europe alone, we saw from 20 to 21, we saw around 13 million going up the cost. And we see from 21 to 22, another 32. So these are big, big numbers. So we are talking around 45 million just for EMEA alone. And then we saw now a saving actually of around 10 million. So then we are down to 35. Yes, there's definitely significant supply chain costs which still need to come. And that's an important piece for EMEA and a big driver also in terms of the margin improvement.

And then different issue. Can you share with us your ideas on the free cash flow for the current year?

Definitely. Elodie, why don't you talk about this?

Yeah. Hi, Elodie. So on the free cash flow, as you saw, we generated 91 million in 2023. That was on the back of our previous year where there was a significant inventory increase to support, obviously, the high growth trajectory on the revenue side that we did. We did see inventory start to reverse in the second half, as I mentioned. We saw a reversal of 50 million in the second half of last year.

Sorry, 15 or 50? 50, 5-0. 5-0.

5-0. And we will continue to drive inventory efficiency in 2024. So we will also continue to drive more working capital efficiency in this direction in the course of the coming year. So basically, continued focus on cash flow generation, as we are known for as a company, and really on working capital. We are good on collections. So the question is really now more efficiency on inventory, which we already successfully in fact cannot.

If I look at your balance sheet, inventories year over year have hardly moved. And also in the cash flow statement, there's basically no change.

That's why I mentioned... Second half, because year over year, we reduced inventory by about 5 million. But you saw compared to our financial in September, a decline about 50. And as I said, we do anticipate more to come in 2024. And last but not least, as you know, we operate an asset light model. I talked a little bit about CapEx. We do get guidance of capex between 1% and 2%. We spend about 1.5% in 2023. And I would expect this guidance of the 1.5% to 2% would also be good to be assumed for 2024.

And last question. You mentioned that you were good in collecting receivables. On the other hand, you seem to be quite generous when it comes to paying your bills because great liabilities came down much more.

You're right. And as I mentioned a little bit earlier, this was also on the back of our very focused burndown of inventory in the second half. So as we were focused on reducing inventory, we also in the second half lowered our accounts payable because we simply bought less material. And that, you see, reflected in our second half year financials. So, again, I would expect this slowly to reverse in 2024, as this was a temporary one-time effect.

But good observation, Luka.

Yeah, very good. I have to say, good stuff. Thank you very much. Thank you.

The next question comes from Jeffrey Osborne with Cohen. Your line is open.

Yeah, thank you. Good afternoon. Just a couple questions on my side, Berner. I was wondering on the North America side, on the backlog that you have, how much of that is adjusted for inflation versus, you know, subject to escalated costs of semiconductors? And then on the semiconductor topic and supply chain, are you starting to see beyond the easement of supply, are you starting to see any lower prices potentially be a tailwind in the coming quarters and months?

Yeah, very good. Hi, Jeff. Jeff, the backlog in the U.S., you know, obviously also we went through quite some discussions with customers. We did say in the past that we have around 30% is really short flow orders, which we like. You know, a customer comes and it's standard equipment. We can deliver it in two to three months. So that's the easy part. And then 70%. where we have adjust and non-adjust, but what I can say, Jeff, to a large degree, we do have adjustments, which I think is great from a supply chain perspective. The other thing what I would like to say Jeff, is that when I think about supply chain in the U.S., it's pretty much normalized. You know, the U.S. business will be pretty much back to 2021 level. So you see quite a vast difference between Europe actually and the U.S., which is great and which also allows us actually then to really push margins. You know, last one, I just wanted to say, you know, we also have quite a few contracts, you know, 213 contracts actually signed with 50% software and services. And that's another, obviously, Jeff, as you can imagine, kind of protection in terms of hardware inflation.

Just to unpack that a bit more, is it specifically the PLC chip in Europe that's the problem then?

The chips, sorry, Jeff, again?

Is it the power line carrier chipset for Europe that's the challenge still as it relates to the margin?

Not only. I mean, the way we set it up with the large supply chain and the large chip and electronic manufacturers, you know, it was really, it was not by design. We tried to hedge. actually operationally, because we have in Europe, we have Euro contracts and also tried to make a natural hedge, so to speak, also in terms of supply chain. But that didn't exactly work out. And so it's really across various components. Actually, we are just in Europe, it takes longer. Jeff, what I can say is, you know, Europe will be back on 2021 level by the end of fiscal year 24 and then back to 2020 level by end of fiscal year 25. In the U.S., we already will be back at the 2020 level, fiscal year 2020 level by the end of this fiscal year, which is FY24.

Got it. My last question is just on the TEPCO. You mentioned it a couple times, but just to be more granular, have you renewed your contract with them? And then could you explain what your relationship is with TEPCO as it relates to sort of a post-Toshiba world as they look to upgrade their network, I think, which they're required to do every 10 years?

So TEPCO, I just visited them actually maybe about six weeks ago. Phenomenal relationship. You know, when I came in, into actually landing the gear. I had a little bit of a no-shit moment in the way that I thought, oh, you know, Toshiba not here anymore. What does he mean? But I can tell you, extremely strong relationship with TEPCO, which I think is phenomenal. You know, in terms of TEPCO, we are delivering, you know, a head and system communication. So the meter itself is amazing. is a local metering supplier, so there was no scope reduction the other way around. We had a very solid, actually, contract win in actually 2023. Got it. Thank you. Thank you, Jeff. Thanks a lot.

The next question comes from Patrick Lafite with UBS. Please go ahead.

Thank you, and good afternoon, everybody. Three questions, please. The first would be a follow-up on Lotar's very good question around free cash flow. I understand, Elodie, what you explained. Inventories are going in the right direction. There's more way to go. Then we have payables, which will normalize, but receivables also look historically extremely low, so there must be some cash or capital absorption happening this year. And in the past, you did provide quantitative guidance, but this time around, you decided not to. So I'm just wondering what's the rationale behind that. Is the uncertainty so high currently, or are there some unknowns ahead that we should maybe consider? Can you just elaborate a bit on that?

Patrick, thanks for your question. So start with the guidance on cash. I mean, if you remember from our Capital Markets Day last year in January, we did discuss this point. We are or we were actually one of the only companies giving so specific cash guidance. We have said in our midterm guidance at the time that we would obviously focus on cash generation, which we do, and we've proven that again in 2023, but that we would not use specific cash guidance anymore. And that's what we have now done also for 2024. So there is nothing that's driven by big volatility or anything like that. It's just something that we've already announced some 18 months ago. So that's on the guidance piece. And on the actual cash conversion and cash generation, I mean, you see here we basically generated $91 million of cash on a $224 million EBITDA. This is a little bit below our historical cash conversion. We normally reckon with 50% to 60% cash conversion, and that's something that we will continue to drive in the future. There is no particular exceptional element of one-time items on the receivables collections. We continue to be very good as a company, and I think that's a very positive drive that we have, and obviously we will continue to drive that.

Patrick, you said you had three questions. Yes. Thanks for that. That was very clear, Elodie. So we think in that 50% to 60% conversion ratio going forward. That's very helpful. Second question is on...

Just to say that's an assumption. As you said, in 2022, we really delivered actually double the amount of the competition because of strategic inventory investment, which are now coming down to Lothar's question, but not yet fully down, but on the way down. But once that is off, I think the 50% to 60% for your models, it's a very good assumption.

Yeah, thanks. The second question would be on the outlook for Americas in this fiscal year. You mentioned some catch-up effects from 2021-22. Would it be possible to quantify how much of these, let's say, delayed revenues you recognized in the last fiscal year, trying to understand how much you need to catch up now in terms of growth in Americas for fiscal 24 before you're actually growing organically again? Or ask differently, will you be actually reporting organic growth also in America this year, or will it be more a flattish period?

Look, when we think about 23 out of the 120 million pent-up demand, as we call it, Pretty much everything actually happened in the U.S., you know, so let's just put it in perspective. And therefore, in 24, we do see a flattish, actually, you know, number going forward because it's just what happened in 23. But as I said, I mean, the prospects in the U.S. are phenomenal.

Okay, so the local currency, the low single-digit growth will more be supported by EMEA and APAC temporarily?

And the US, but I'm saying it's a low-growth environment we are in because we had this large pent-up demand in 2023. Okay, understood. Thanks.

The last question would be on the partnerships you announced, SPAN and BRUSA.

um of course you spent some money on that right the 70 something million can you talk a bit about the economics for for these partnerships and paybacks um look look maybe i start with spain in the us spain we made a 50 million investment in spain what spain and us can do actually in the us it's a that obviously our Revelo meter provides the total constant visibility of what's going on, on household level. And with this gateway, which we developed together with SPEN, it actually, we can then control on household level in terms of, for example, EV capacity or water heater or whatever. And I think that's super important. And just to give you an example, with this type of solution, for example, in California, you know, to upgrade the grid, it will be around $55 billion. But with this type of solutions, it's around $3 to $5 billion. So you see a big factor. I cannot give you specific numbers yet, but I tell you, we talk to large utilities in the U.S., like Duke, like SoCal, Edison in California. They are excited about the solution. So we start actually really put pilots into the field starting in 25. The other thing is Prusa. Prusa for us equally exciting. The inductive charging product has been certified. We expect first revenues in 25. And that's also part of our 100 million commitment, as you remember, which we gave at the Capital Market State January 23, but Prusa clearly we start actually recognizing revenue fiscally at 25.

Okay.

Thank you. Thank you for all of this. Thank you very much, Patrick. Very good.

The next question from the phone comes from Urs Emminger with Research Partners. Please go ahead.

Good afternoon. Hi, Bruno. Most of my questions have already been asked and answered. So two minor questions. First one, tax quote was a positive surprise. What should we put in going forward? What kind of tax percentage should we put in in our models? That's the one thing. Then I saw that the cash in the balance sheet and cash flow statement was slightly different. There's some mentioning of restricted cash. Perhaps you can explain this little difference, just so. Yeah.

Yeah, very good. The first one was about tax. We had a little bit of an acoustical problem.

If I understood your question well, it was about the tax rate in 2023 that was low and what to expect going forward in your model, right? So let's start with the 2023 low tax rate. Yes, it was low, 13.8%. It was driven by by the reversal of valuation allowances, so write-off of tax losses that we had, in particular in India and in South Africa. And we believe that these losses will be used in the next year, considering the profitability in these countries that are looking to improve. And therefore, there is a reversal here. Without this exceptional impact, our tax rate would be in the range of 21% to 22% in FY 2023, which looks more in line with our normal level of tax rate. And so going forward, we've always said somewhere in the range of 20% to 25%, and that makes sense on a normalized basis.

Okay. Second question, can we answer it directly or should we make a follow-up on that? What was the second question? Okay, there was a question. There was a difference.

We will follow up with you separately on this particular question.

Yes, we take it as an action item. We'll come back to you directly. Yeah, yeah, no problem. Very good. Thank you. Thank you.

The next question comes from with . Please go ahead.

Yeah, thank you. I have two remaining questions, and the first one is on the, I try to put the two guidances, say, on growth into context, especially when it comes to the big picture. With the you will be, I see that in the of the midterm guidance, that it would imply that next year will be also rather on a low single-digit level. Is this the new normal? Have we reached a feeling or how should we look at this situation there?

Thank you, Doron, for the question. No, it's not a new normal. It's really just a pent-up demand which we experienced in 23 only centers on a higher level versus 24. But we actually, what we did say, mid to high single digit, that's a good assumption. Absolutely, we feel comfortable with that. But again, that was just a catch-up, which we now saw with this very strong 17.6% year-over-year growth in constant currencies, 15.6%.

Okay, thank you very much. And my final question is on the EV charging solution category. I remember the target there is 100 million by 2025. We're almost there. Could you give us maybe an update where we are in terms of revenue already? And maybe what are some further plans there? Or do you plan more acquisitions in that area?

Yeah. So the way we think about, you know, the 100 million, the commitment between the capital markets there, January 2023, what we see is the EV market cooled down a little bit globally due to, you know, missing subsidies and that type of thing, you know, subsidies which expired and also some, you saw first mover advantages of EV owners and now slowing down a little bit. You know, however, what I have a little bit of an echo, sorry, Doron. But what I can say, Doron, is that, you know, when you look at our business, when you look at our own business together with the Brusa, we will achieve that. We will achieve 100 million by the end of 2025.

And more ecosystem in the pipeline from that?

Doron, again?

Do you have other acquisitions in the pipeline?

No, no. We feel we can do it actually with our own setup we have. Obviously, we do AC charging. With Brusa, with the technology partnership we have, we do inductive charging. We also look into DC charging. So we feel actually then we have Thunder Grid, which is doing turnkey solutions. Also in Australia, we also deliver software, you know, a load management software to Bruce in terms of the application. So we feel that we can do it actually with the current configuration of businesses.

All right. Thank you very much.

Thank you very much, Doron. Thanks a lot.

Last question for today is a follow-up question from Akash Gupta with JP Morgan. Please go ahead.

Yes, hi, thanks for my follow-up. I have a more high-level question. One of your U.S. competitor or I should say your key U.S. competitor hosted a capital markets day recently where they guided 5% to 7% medium-term CAGR, revenue CAGR over 2023 and 15% to 17% adjusted EBITDA margin. When we look at your business and compare with their business, are there any reason to believe that your performance could be materially different than theirs? Any comment on high level would be welcome. Thank you.

So, no, no. My view is, I mean, ITON is a formidable competitor, to be clear. We compete head-on every day. What I would say, if you look a little bit, into history, you know, we had extremely strong 22, 23 deliveries. And therefore, there's a little bit to catch up, which now we obviously experience in terms of the 24 numbers. You know, inherently, there's no difference in structure or competitive positioning. I think we win our fair share of market, you know, in the market, our fair share in the market. So does ITRON. So I feel there's not much difference.

Thank you.

Thanks a lot. Then, Miruna, I think that's the end of the questions. are no more questions sir yes correct very good okay so thanks for your questions i think excellent discussions i'm going to close the call in a moment but before that i would like to leave you with this slide as a reminder of the key takeaways of today's call first a record backlog of almost 3.8 billion us dollars demonstrates really our leading technology positions It motivates us to keep delivering leading-edge innovations to our customers. Secondly, we were able to deliver strong results above guidance and continue to expand our leading position. Third, we are focusing on further expanding profitability in FY24 and reconfirming guidance FY25. As we continue to actually transform Lenders & Kia by expanding our software and services, you heard that before, and also flexibility management solution, which maybe today we didn't talk so much, but that's also very, very critical in our value proposition. So in a nutshell, look, we are very motivated. I think we are a recession-resilient company. We are in the sweet spot now. of the transition and also further amplified by the current energy situation you know with that said i feel that you know we have the right strategic focus to drive future profitable growth and i really would like to thank at this point in time all of you on the call here today customers shareholders you know, for the Continued Trust and our employees who actually really are grinding in the trenches every day. So thank you very much for joining us today. Stay safe and healthy, and I look forward to meeting all of you soon, virtually or in person. Goodbye and have a good day. Thank you.